Facebook Investor Sues Nasdaq Over ‘Mishandled’ Stock Offering

Wednesday, 23 May 2012 07:15 AM

 

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A Facebook Inc. investor said in a lawsuit that Nasdaq OMX Group Inc. “badly mishandled” Facebook’s initial public offering, delaying trading and failing to cancel orders when requested by customers.

Phillip Goldberg, a Maryland investor, said in a complaint filed yesterday in Manhattan federal court that he tried to both order and cancel requests for Facebook shares through an online Charles Schwab Corp. account the morning after the May 17 IPO. He is seeking to represent a class of investors who lost money because their buy, sell or cancellation orders for Facebook stock weren’t properly processed, according to the filing.

“Orders placed by investors seeking to purchase Facebook shares during the first trading day often took hours to execute,” Goldberg said in the complaint. “In the meantime, the investors seeking to purchase those shares had no idea if their trades had executed, and, accordingly, had no idea if they owned Facebook shares at all.”

Goldberg, who claims Nasdaq acted negligently, is seeking unspecified damages. The U.S. Securities and Exchange Commission has said it will review the opening day of trading in Facebook shares on Nasdaq. The exchange has blamed poor design in the software used to drive auctions in IPOs.

‘Sponsored Stories’

Robert Madden, a spokesman for Nasdaq, didn’t return a call yesterday seeking comment on the suit. Ashley Zandy, a spokeswoman for Facebook, the world’s biggest social network, declined to comment on the suit.

Also yesterday, Facebook settled a lawsuit “in principle” over claims that it used information supplied by users to advertise products without their consent. Terms of the agreement weren’t disclosed in a filing in federal court in San Jose, California.

Facebook was accused in the complaint of appropriating the names, photographs and identities of users for advertising endorsements. The company’s “sponsored stories” were a “misleading advertising scheme” using material posted by Facebook members on their profile pages, according to the complaint.

Andrew Noyes, a spokesman for Menlo Park, California-based Facebook, declined to comment on the settlement. Jonathan Davis, a lawyer with the San Francisco-based Arns Law Firm representing the plaintiffs, didn’t immediately return a call seeking comment.

Cancellation Orders

In the Nasdaq case, Goldberg claims that on May 18, he tried to make a series of limit buy orders through his online account. The trades failed to execute and he tried to cancel. Instead of canceling the trades, Goldberg’s account reflected the cancellation orders as “pending” throughout the day, he said.

Goldberg said that even with the cancellation orders, one trade, at $41.23, was executed about three hours after it was placed, when Facebook shares were trading at about $38.

Some investors lost money when their orders to cancel trades weren’t processed, as Facebook’s share price declined and buy orders were executed at the higher, earlier prices, Goldberg claimed. Others weren’t able to determine whether their orders had been executed, making it impossible to sell the shares and avoid losses, he said.

Thousands of Investors

Goldberg cited press reports blaming the delays on New York-based Nasdaq and claiming that as many as 30 million Facebook shares were affected. He said there are thousands of investors in the class he seeks to represent in the suit.

Goldberg alleged that Nasdaq was negligent in failing to ensure trades were executed quickly and correctly, in not exercising effective quality control and in failing to oversee employees and contractors involved in executing the trades.

Facebook, which raised $16 billion in its initial public offering, fell 8.9 percent to $31 yesterday at 5:20 p.m. New York time. The price was $7 below Facebook’s $38 offer price.

The IPO valued the company company at $104 billion.

The case is Goldberg v. Nasdaq OMX Group Inc., 12-CV-04054, U.S. District Court, Southern District of New York (Manhattan).


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